By Tiernan Ray

As I mentioned earlier, Intel (INTC) shares are levitating today on a wave of good feeling in advance of the company’s Q4 report Thursday afternoon. The stock is currently up $1.02, or 4%, at $26.52.

The big news was J.P. Morgan’s Christopher Danely’sabout-face, but there were others cheering today.

Jefferies & Co.’s Mark Lipacis reiterated a Buy rating, and a $32 price target, writing that $3 per share in annual EPS is possible by 2016 (this year’s estimate is $1.89), as the company beats the competition on the cost of making transistors.

Lipacis likes that Intel has realized its error in misjudging the importance of the mobile computing market.

Unlike Danely, who sees the company backing off of investment, he sees CEO Brian Krzanich redoubling the company’s efforts: “We think now that it has realized that market inflection, that it has focused its vast resources towards gaining share in those markets.”

“Intel’s Chairman comments from the November, 2013 analyst day are telling,” writes Lipacis:

“When we began the search for the CEO a year ago, I have to admit we were, well I don’t want to speak for the board. I was – that we seemed to have lost our way. Our basic heritage, a fundamental foundation of our business model is Moore’s law, which tells us, what will happen in the future, and we had lost our way. The future is simple, computing devices are going to be smaller, they’re going to be lower cost, they are going to be more powerful, and even though Gordon didn’t say it they are also going to be mobile.” – Andy Bryant, Chairman, Intel Corp. (Investor Meeting: November 21st, 2013)

Lipacis thinks Taiwan Semiconductor Manufacturing (TSM), which builds the chips for most chip makers, is running up against a production bottleneck as feature sizes shrink:

At the same time that Intel has started focusing on computing devices in mobile form factors, it appears that TSMC is hitting a wall on the transistor cost curve. The chart below was presented by TSMC’s CTO. We believe that due to Intel’s larger R&D budget, its recent focus on the mobile/tablet market, and its higher R&D spend relative to TSMC, that it will produce a lower cost transistor than TSMC for the first time ever in 4Q14. We believe Intel extends that cost lead 24 months after than in 2016.

That echoes remarks from Intel’s own head of mobile computing, Hermann Eul, whom I interviewed at the Consumer Electronics Show last week.

Heres’s how Lipacis models Intel’s potential cost advantage:

The consequence of a cheaper transistor is Intel may gain major share in phones and tablets in coming years:

We believe Intel stands to gain share in the tablet and handset markets as it brings to market 50% and 66% pricing advantages in 2015 and 2017. Gartner forecasts ~400m tablets ~1.5bn smartphones in 2016, and we expect Intel can achieve 50% share in the tablet market, and 20% share in the smartphone market.

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JANUARY 14, 2014 4:20 P.M.

HangLai wrote:

Tiernan Ray: You are quoting something that is hardly true. Clearly Mr. Mark Lipacis of Jeffries is not a semiconductor manufacturer expert; yet, he writes an expert article to fool the market, or simply he just doesn’t understand the semiconductor technology. Intel did explain its 14nm or narrower chips (10 nm or lower) have or will have a smaller die size than TSMC’s 28nm chip, due to the fact that TSMC was unable to shrink the line width between transistors since they don’t have the high DK material and FIN formation so that it cannot isolate the interference between transistors. As line width continue to shrink, the interference becomes more important. TSMC is not ready for the FIN or other processing techniques, so it must keep the device line width wider in order to separate the transistors to avoid interference even though the channel length is shorter ( at 20nm note). However, TSMC cannot do it now does not mean they cannot do it in 2 year from now ( Intel is laughing at the advantages for 2 years from now). Besides, Intel did not mention that its transistor count on the die is substantially larger than TSMC (ARMH) due to CISC and more cache ( SRAM and other interface links), so the die size difference between Intel and TSMC(ARMH core) is not a significant ( 30%) even though Intel is 1 -2 not ahead of TSMC ( 22nm vs. 28nm or higher for example). As an example, Intel’s margin is 60%, while TSMC is about 40% now. Clearly it is not 300% advantage as Lipacis claimed even in the 14nm note. TSMC is selling much more chips than Intel but at a lower price. Clearly if TSMC cannot keep up with the technologies, it will lose market share, it is far more detrimental to TSMC than just die size cost disadvantage. So please discard yours and Mr. Mark Lipacis’ comments, since it is not factual at all.

JANUARY 14, 2014 8:12 P.M.

ND wrote:

Lipacis is speculating to the point that it seems irresponsible. The fact of the matter is that ARM and its partners are all investing heavily in the sub-20nm space and there have been published examples of results comparable to Intel's supposedly far superior sub-20nm technology. The move into sub-20nm FINFET is driven by physics - to assume that Intel has an unassailable lead is similar to assuming that the Russians couldn't have figured out how to build an atom bomb on their own back in the early days of the Cold War. You can't hide physics. Don't believe the hype that Intel is finally cracking into mobile. They've been "cracking into mobile" for 5 years now.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.